Power Tariffs : Caught between Cost Recovery and Affordability

Download

Published

Journal

Author(s)

Metadata

Abstract

This is the first paper to build a
comprehensive empirical picture of power pricing practices
across Sub-Saharan Africa, based on a new database of tariff
structures in 27 countries for the years 2004-2008. Using a
variety of quantitative indicators, the paper evaluates the
performance of electricity tariffs against four key policy
objectives: recovery of historic power production costs,
efficient signaling of future power production costs,
affordability to low income households, and distributional
equity. As regards cost recovery, 80 percent of the
countries in the sample fully recover operating costs, while
only around 30 percent of the countries are practicing full
recovery of capital costs. However, due to the fact that
future power development may be based on a shift toward more
economic technologies than those available in the past,
existing tariffs look as though they would be consistent
with Long Run Marginal Costs in nearly 40 percent of
countries and hence provide efficient pricing signals. As
regards affordability, today's average effective
tariffs are affordable for 90 percent of today's
customers. However, they would only be affordable for 25
percent of households that remain unconnected to the grid.
Tariffs consistent with full recovery of economic costs
would be affordable for 70 percent of the population. As
regards equity, the highly regressive patterns of access to
power services, ensure that subsidies delivered through
electricity tariffs are without exception also highly
regressive in distributional incidence. The conclusion is
that achieving all four of these policy objectives
simultaneously is almost impossible in the context of the
high-cost low-income environment that characterizes much of
SSA today. Hence most countries find themselves caught
between cost recovery and affordability.